York Reduces the Franchise Tax for Small Businesses
Mark H. Levin
2006 - The 2005/2006 New York State Budget Act reduced the
entire net income (ENI)–based general corporation franchise
tax (Article 9-A) for small business taxpayers from 6.85%
to 6.5%. This reduction of the small business tax rate is
the latest in a series of reductions that have lowered the
tax rate from 9%, the rate for years beginning before July
addition to the reduction in the small business tax rate,
the Act also widened the definition of a small business
taxpayer. Effective for tax years beginning on or after
January 1, 2006, a small business taxpayer is defined as
one whose ENI does not exceed $390,000.
new 6.5% rate applies to all taxpayers whose ENI does not
exceed $290,000. For taxpayers whose ENI is between $290,000
and $390,000, the 6.5% small business rate phases out until
it reaches the regular franchise tax rate of 7.5%.
ENI-based franchise tax should be computed as follows:
If the ENI does not exceed $290,000, the tax rate is 6.5%
of the ENI base.
If the ENI exceeds $390,000, the tax rate is 7.5% of the
If the ENI exceeds $290,000 but does not exceed $390,000,
the tax is computed by adding the following amounts—
$18,850 (6.5% of the first $290,000 of the ENI base),
of any ENI base over $290,000, plus
of any ENI base over $350,000.
computing the Metropolitan Commuter Transportation District
Surcharge, however, a taxpayer must recompute its tax using
the rates that were in effect for the period from July 1,
1997, through June 30, 1998.
the above changes made by the Act reinstate a somewhat complex
tax calculation, they do reduce the tax burden on small
H. Levin, CPA, is manager, state and local taxes,
at H.J. Behrman & Company, LLP, New York, N.Y.